Global Equities Fall as U.S. Oil Prices Plunge to 18-Year Low Under $20

Posted on 03/30/2020 6:29 AM

Some U.S. biofuel plants idled; some may never come back


In Today’s Updates


* Global equities mostly decline as Trump extends social distancing guidelines
* Yield on 10-year T note falls to 0.634%; dollar higher
* U.S. crude oil price falls below $20
* Copper/gold ratio made a new 20-year low
* Analysts continue to lower their growth forecasts
* India's gov't advises domestic refiners to declare force majeure on oil imports
* China's central bank cuts short-term lending benchmark, injects $7 bil. into system
* Some U.S. biofuel plants shut down and some may never come back
* Congress approved $454 billion to reload the Fed’s own ability to lend
* Equity bear markets usually retest the bottom
* Coronavirus update
* Ohio, Pa. extend their primary dates.




Pro Farmer released Policy Updates on Saturday and Sunday, and a Special Report on the coronavirus situation on Sunday.




Markets: Japan’s benchmark Topix closed down 1.6% after Shinzo Abe, prime minister, warned that the country was “on the brink” as it faced risks from a second wave of infections. Both Hong Kong’s Hang Seng and in China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks fell about 1%. An exception was Australia, whose benchmark S&P/ASX 200 soared 7% by the close of trading after the government unveiled a A$130 billion ($80.1 billion) wage-subsidy program. European stock markets slipped again.


Yield on the 10-year U.S. Treasury note fell to 0.634%, according to Tradeweb, from 0.744% Friday. The dollar is slightly higher.


The copper/gold ratio made a new 20-year low, which some analysts say suggests risk-off conditions persist for the time being. Meanwhile, cotton futures continue to sink on concerns about global demand. Chicago lean hog futures are tumbling.


Oil prices hit an 18-year low today and have now plummeted by about two-thirds this year. West Texas Intermediate, the U.S. oil benchmark, slid as much as 7.4% to an 18-year low of $19.92 per barrel. Brent crude, the international marker, fell as much as 7.6% to $23.03 a barrel. The downdraft came after President Donald Trump extended social distancing guidelines in the U.S. until the end of April.


     Oil prices sink


India's gov't advised domestic refiners to declare force majeure on oil imports with plunging domestic demand as a result of the country shutdown, Bloomberg reported. India is the third-largest crude oil importer in the world, with flows averaging a little over 4.5MMbbls/d in 2019. Reuters last week reported Indian LNG buyers issuing force majeure notices.


China's central bank today cut its short-term lending benchmark and injected $7 billion into the financial system in the latest action taken by policymakers to try and support markets. Ma Jun, an adviser to the People’s Bank of China, said in comments published by state media that the central bank still had “ample room for monetary policy and monetary policy tools.”


Analysts continue to lower their growth forecasts as the pandemic has spread across Europe and the U.S. Today, economists at Nomura estimated a worst-case scenario of almost 7% contraction for the global economy in 2020.


Congress approved $454 billion to reload the Fed’s own ability to lend. The economic-rescue legislation (Rescue measure 3) asks the Fed to charge headlong into credit and fiscal policy, by financing businesses, states and cities.


     Fed balance


Equity bear markets almost never end on a single massive sell-off, without retesting the bottom, says Anatole Kaletsky of Gavekal Research in a note to clients. “Looking back over the 15 bear markets that have occurred since 1950 (defined arbitrarily as -20% peak-to-trough declines) plus the Big Daddy of them all in 1929-32, I could find only one case in which the initial major low was not retested within three months or so. This was the bear market which bottomed out on August 12, 1982, when Paul Volcker abruptly abandoned monetarism in response to Mexico’s debt default. In every other bear market, the bottom has been retested either once or twice, as in the chart below.”


     Restesting the lows


In the U.S., the pool of potential workers has exploded. A record 3.28 million people applied for unemployment benefits. Some big companies have seen pandemic-fueled spikes in demand, including Walmart and CVS, and are seeking nearly 500,000 new staff members in the coming weeks. In Europe — where social safety nets mean fewer workers have lost their jobs — governments are trying to move workers to where they are most needed.


     Jobs chart


It's a big week for America. Bills are coming due for companies and millions of laid-off workers: payrolls, rent, utilities, credit cards, mortgages.


     Bills to pay


Pandemic baby boom likely. The world’s biggest manufacturer of condoms said its stockpile will last just two more months.




Some U.S. biofuel plants shut down and some may never come back. “When we come out of these two Black Swan events -- the price war in oil and now the coronavirus -- we will probably look differently as an industry,” Todd Becker, chief executive officer of U.S. ethanol producer Green Plains Inc., told Bloomberg. “There are definitely plants out there that are going to run out of capital.” Corn ethanol plants are closing across the U.S., Brazilian producers of sugar cane-based fuel are sinking further into debt and efforts to use more biofuel are being jeopardized in Asia. In Europe, producers are either cutting back or making feedstock for hand sanitizer. U.S. gasoline hit a 20-year low and prices at the pump are already below $1 a gallon in some states. Link to Bloomberg article (paywall).


     Biofuel plunge


     Brazil biofuel


Coronavirus update:

  • Amid calls for more transparency in the U.S., public health experts are debating how much information on the spread of the virus should be released, the New York Times reported.
  • Two of the country’s largest health insurers, Cigna and Humana, agreed to protect their customers from out-of-pocket costs if they need treatment for Covid-19, the disease caused by the virus.
  • The first of 22 scheduled flights carrying medical supplies from China arrived in New York on Sunday. White House officials said the flights would funnel much-needed goods across the U.S. Link to details from the NYT.
    Meanwhile, a 1,000-bed temporary hospital opens in Manhattan’s Javits Center, a 68-bed overflow field hospital is near completion in Central Park, and a U.S. Navy hospital ship, the USNS Comfort, is due to dock in New York city, having made the journey from Norfolk, Virginia.

  • The Netherlands recalled defective masks made in China. About 600,000 had already been distributed to local hospitals, the health ministry said. Earlier this month, Spain and Turkey complained of faulty rapid testing kits from China.
  • An F1 team is building a new breathing aid. The device would deliver oxygen to the lungs while cutting the need for ventilators, helping keep patients out of intensive care. If trials go well for Mercedes and the University of London, it may be available in a week’s time.
  • Manufacturers want more guidance from the federal government. Company executives say they are ill-equipped to make decisions about which hospitals and states should receive their medical supplies first and are calling on the government to step in.
  • Sorry stats: The U.S. has fewer practicing physicians, fewer hospital-employed physicians, and a lower number of hospitals per capita than most wealthy nations, according to data compiled by the Kaiser Family Foundation (link). It also has a lower number of hospital beds per 1,000 people: 2.8 compared to South Korea’s 12.

  • U.S. Reps. Joe Cunningham (D-S.C.) and Mike Kelly (R-Pa.) announced they had tested positive for coronavirus. They are the fourth and fifth members of Congress to test positive for the virus.
  • FDA approved an emergency coronavirus treatment. Hydroxychloroquine and chloroquine, two malaria drugs controversially promoted by president Trump, were authorized for limited use. Scientists prefer clinical trials first, due to a lack of proof over its efficacy.

Other items of note:

  • Ohio Governor Mike DeWine (R) signed HB 197 into law rescheduling the state's primary election from March 17 to April 28. Pennsylvania Governor Tom Wolf (D) signed legislation postponing the state's April 28 primary election to June 2.


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